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China will set up monitoring mechanism for prices of raw materials and stabilize prices of major products such as lithium carbonate and rare earth, said Chen Kelong, an official for the Ministry of Industry and Information Technology (MIIT), at a press briefing on Friday.
The comments came after prices of battery-grade lithium carbonate and lithium hydroxide in China staged a V-shaped trend this year. According to data from the Shanghai Metals Market (SMM), average lithium carbonate prices surged from 364,000 yuan per tonne in early February to hit a new record high of 503,000 yuan per tonne at the end of March before falling back to 461,500 yuan per tonne in mid-April.
The prices resumed the upward trend in mid-June and as of September 2, the prices hit 493,000 yuan per tonne, approaching the highest level this year, according to SMM data.
Separately, prices of lithium hydroxide surged from 305,500 yuan per tonne in early February to 499,500 yuan per tonne in mid-April before falling back to 475,000 yuan per tonne, according to SMM. As of September 2, prices of battery-grade lithium hydroxide stood at 488,500 yuan per tonne.
Commenting on the reason for the latest gains in lithium prices, analysts from the Shanghai Metals Market said that the power rationing in Southwest China’s Sichuan province, a major lithium production hub in China, in August led to production cut in upstream lithium salt companies, and meanwhile, a Covid outbreak in Northwest China’s Qinghai province, home to one of the country’s largest lithium reserves, also led to disruptions to lithium supply chain.
In addition, into the third quarter, output in Qinghai lithium salt lake declines due to seasonal factors while downstream industries’ lithium demand continues to grow, further tightening lithium supply, said the analysts.
Notably, climbing lithium prices have sharply increased cost pressure for downstream industries and the industry ministry has made several calls for curbing surging prices.
In March this year, the industry ministry and the National Development and Reform Commission (NDRC), the country’s top economic planner, said at a meeting that upstream and downstream companies should strengthen collaboration, jointly guide lithium salt prices to return to reasonable levels, step up efforts to ensure market supply and better support healthy development of strategic emerging industries such as new energy vehicle industry.
The sharp rises in lithium prices has had divergent impacts on upstream and downstream industries. China’s leading lithium producers Tianqi Lithium and Ganfeng Lithium saw gross profit margin for the first half of the year reach 87.5% and 68.4%, respectively, rising by 40.86% and 27% from a year earlier, according to their first-half earnings report.
In contrast, CATL and Gotion High-tech, two of China ‘s largest lithium battery producers, saw gross profit margin for battery production reach 15.04% and 12.49%, respectively, in the first six months of the year, falling by 7.96% and 35.17% from the same period last year.
“Based on the current structure of lithium supply and demand in China’s domestic market, lithium salt prices are expected to continue to uptrend by the end of this year,” said Fu Dawei, analyst from the Shanghai Metals Market.